After lengthy deliberations between feuding House and Senate Republicans, a tax bill has emerged which provides $350 billion in temporary tax cuts, and more than $700 billion in permanent cuts if key provisions, scheduled to expire, are reenacted. President Bush hailed the bill as good for American workers, families and investors. Senate Minority Leader Daschle, however, warned that Congress was “destroying the fiscal policy of this country, tax cut by tax cut.” Following passage of the bill, the Senate voted 53-44 to increase the debt limit by nearly $1 trillion.

The bill’s provisions would

¶ Cut the top tax rate on dividends and long-term capital gains to 15% through December 31, 2008. Dividend tax reductions will be retroactive to 1/1/03, while capital gains tax reductions will be effective with respect to sales or exchanges made on or after 5/6/03. To be eligible for the new 15% dividend tax rate, the underlying stock must be held for more than 60 days during the 120-day period beginning 60 days before the ex-dividend date.

¶ Accelerate retroactively to 1/1/03 marginal tax rate cuts of 2% (3.6% for the 38.6% bracket) formerly scheduled to take effect in 2004 through 2006. The new rate brackets (above 15%) would be 25%, 28%, 33% and 35%. After 2010, rates above 15% would revert to pre-2001 EGTRRA levels. After July 1, 2003, paychecks will rise as companies adjust for taxes overpaid in the first half of 2003. For example, an employee formerly in the 27% bracket and now in the 25% bracket will be withheld at a rate of 23% for the remainder of 2003. A married couple earning $126,000 with 2 children will pay $3,028 fewer taxes each year in 2003 and 2004 under the new law.

¶ Increase the standard deduction for married filers to twice that of single filers for 2003 and 2004. After 2004, the standard deduction for joint filers would revert to levels enacted by EGRRA (e.g., in 2005, to 174% of a single filer’s basic standard deduction).

¶ Raise the AMT exemption for married couples to $58,000 for joint filers and surviving spouses for the years 2003 and 2004. In 2004, the AMT exemption for those filers would revert to $45,000. Treasury predicts that the AMT will affect 40 million Americans by 2013 unless the law is overhauled.

¶ Increase the “bonus” depreciation rate established by the 2002 Tax Act to 50% from 30% through 12/31/04. Taxpayers may elect, on a class-by-class basis, to claim 30% depreciation instead of 50%. This election might be made where net operating losses are about to expire, or where the taxpayer expects to be in a higher rate bracket in the following year.

¶ Increase the IRC § 179 maximum annual expensing amount for small businesses to $100,000 from the current $25,000. The bill would also (i) increase the maximum capital expenditure permitted before the $100,000 expensing amount is reduced dollar-for-dollar — to $400,000 from the present $200,000; (ii) permit off-the-shelf computer software to be expensed; (iii) allow taxpayers to make or revoke expensing elections on amended returns without IRS approval; and (iv) index the increased amounts for inflation after 2003.

¶ Increase the child tax credit to $1,000 from $600 for tax years 2003 and 2004 only. Many families will receive rebate checks of $400 as early as this summer.

The bill will also provide $20 billion in short-term aid to state governments in 2003 and 2004. However, that amount is only a fraction of the deficit predicted for most states in fiscal 2004.